With continuous increases in interest rates and inflation, consumers should carefully manage their finances to avoid being over-indebted, according to Claire Klassen, Consumer Financial Education Specialist at Momentum Metropolitan
Klassen said: “Over-indebtedness is a stage in your financial life where you have accumulated debt that exceeds your monthly income.”
“The first sign that you are over-indebted is when more than 70% of your net income is paid toward debts, bills, or living expenses, and you need assistance with managing your finances.”
Sebastien Alexanderson, founder and debt counsellor at National Debt Advisors (NDA), shares three ways you can manage your debt.
Avoid using credit
“One of the first signs that indicate that your debt situation is spiralling out of control is when you start feeling like you must rely on taking up more debt on a monthly basis, just to make it through the month,” Alexanderson said.
When this happens, it’s time to re-evaluate your living expenses and look at ways to live more frugally by not taking on any new debt.
Get information on how you can repay your debts
Know the interest rate, the repayment terms, and monthly instalments of the new debt you are taking on. Knowledge is power and you are then not blindly taking on debt you will not be able to service.
Buy what you can afford, not what you can borrow
Alexanderson said that this phrase may sound simple but, as the unwritten rules of the debt trap would have it, it really isn’t.
“One of the devious ways that creditors might lure you into overwhelming debt is by offering you very attractive credit products that fall right at the edge of your affordability scale, Alexanderson said.
Alex Ollewagen, a client solutions actuary at Metropolitan, shares another three ways that people can manage debt.
Have a budget
Draw up a budget with all your income and expenses to manage your money properly. Without a budget you will have no idea where all your money is going or what money “leaks” you may have.
Create a list of all of your outstanding debt
It is important to have a view of your debt by listing all outstanding payments that you owe.
Consult a professional
Speak to an accredited financial adviser to help you with money matters and managing your debt.
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